An Option - To Go Either Way

Known for their thorough technical research, editors
and analysts at perennial Money Show favorite, Schaeffer's Investment
Research, demonstrate that they also have solid knowledge of fundamental
factors related to share movements. Here, Beth Gaston-Moon depicts that
succinct...

"AK Steel (AKS NYSE) manufactures carbon, stainless, and electrical steel products. The speculative
crowd has descended upon the November 15 call (AKS KC), a slightly
in-the-money position that has seen more than 14,500 contracts cross the tape
today. Already with slightly more than 4,000 contracts in residence, the bulk of
today's volume will likely translate into new open interest tomorrow. The 15
call strike is already home to heaviest open interest in the October, November,
and December series, accounting for nearly 32,000 open 15 calls. The stock's
move above this threshold of potential structural resistance is a testament to
its strength.

"The speculative crowd has
turned its interest to AKS as its union gathers to vote on the company's second
final contract offer.

"Look for today's action to have
an impact on the stock's Schaeffer's put/call open interest ratio (SOIR)--at
0.27--already within 3% of an annual low. Should today's contracts build the
open-interest reading at the November 15 strike, this reading could peg a new
nadir (which is cause for modest concern from our contrarian perspective).

"
The stock's price action
justifies this bullish speculation, zooming nearly 40% higher during the past
four weeks. Rebounding from technical support in the 11.50 region, it has ridden
the wave of broader-market strength to its highest point since mid-April. The
shares have regained control of their 10-week and 20-week moving averages,
forcing these trendlines into a bullish crossover for the first time since early
January.

"With call buyers licking their chops and AKS up such a hefty margin in such
a short period of time, I wonder if the stock has risen too far, too fast. If
so, it could be on the precipice of a pullback. But more than 13% of the
company's float is sold short. It would take about 6 1/2 days (at average daily
volume) to dump all of these bearish bets. With the stock exhibiting a solid
rally, these bears could begin to relinquish their positions, creating some
additional buying demand.

"Additionally, only four
analysts follow the shares, one with a "buy" and two with "strong sells." Added
coverage or an upgrade or two could continue to feed the equity's rally. AKS
earns a Schaeffer's Equity Scorecard rating of 6.0, which seems about right from
a risk/reward perspective. Options players are crowding the bullish bandwagon,
but short sellers and skeptical analysts could produce some positive attention.
I'm keeping this one on my radar but exerting a degree of
caution."